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Credit Suisse spinoff: CS stock price has halved in difficult year for Swiss bank hoping to avoid capital raise

13:14, 22 September 2022

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Credit Suisse spinoff likely to help raise well needed funds for the bank who is also trying to get in reputation back in line. Photo: Getty Images

Credit Suisse (CS) has revealed plans to spin off its operations into three separate units in order to fend off a capital raise, while it tries to recoup some of its recent reputational damages.

After lurching from crisis to crisis in the last couple of years, which included a number of lawsuits and a spying scandal, chair Axel Lehmann and the rest of the board decided a change was needed.

Credit Suisse (CS) share price chart 

News broke that the bank is considering to split its investment bank into three separate units, including a “bad bank” which will be sold off in order to raise much needed capital. Credit Suisse is unlikely to go to market to raise funds due to the depressed share prices.

The share price of Credit Suisse has fallen 36% in the past six months. By comparison in the same time period Goldman Sachs (GS), Morgan Stanley (MS) and JP Morgan (JPM) have lowered 6%, 8% and 20% respectively.

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"Bad Bank”

The Financial Times broke the news this week that Credit Suisse (CS) is planning to unveil its new strategy for the business according to sources.

The proposal will see the investment bank split into three parts, an advisory business, a “bad bank” which will hold high-risk assets - which are both likely to be divested - and a third part comprising the remainder of the business. The shake-up is likely to result in a number of job losses.

Credit Suisse said in a statement: “We have said we will update on progress on our comprehensive strategy review when we announce our third-quarter earnings.”

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The company's third quarter earnings are due October 27 2022.

 

Scandals

According to reports, the bank’s senior members are reluctant to go to the market to raise funds. The company’s share price has halved year to date, and the declining trend has only been exacerbated in recent months. Raising equity, therefore, may not be the best option for the bank.

The company has been involved in a number of scandals in recent years which have caused investor confidence in the stock to decline.

  • In 2018, the last time the stock price peaked, Swiss regulators found that the bank needed to improve its anti-money laundering controls after it found shortfalls in the bank's dealing with FIFA and other corporations. The same year saw one of Credit Suisse's top bankers forging client signatures to divert money, causing $150m in losses for the bank.
  • In 2019, the bank was caught in a corporate espionage scandal when it admitted to hiring private detectives to track outgoing executives. In 2020, it was alleged the bank's checks on clients who were found to be linked to a Bulgarian drug scandal were inadequate.
  • In 2021 the collapse of Archegos and Greensill, both majority funded by Credit Suisse, led to huge losses for the bank.
  • In January 2022, chairman António Horta-Osório resigned after being breaking Covid-19 restrictions. The position was taken up by Axel Lehmann, who now holds the responsibility of turning around the reputation of the bank.

Morgan Stanley (MS) Price Chart

Share outlook

Many of the analyst outlooks for the stock price of Credit Suisse have lowered in recent weeks. In August Goldman Sachs Lowered its rating from neutral to a sell. Deutsche Bank lowered its target price for the stock from CHF 7 to CHF 6. Morgan Stanley also lowered its target price to CHF 6.

There is likely to be a change in outlook once earnings are released at the end of October, along with further details of the new strategy.

Further reading

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